Don Foster, the Liberal Democrat education spokesman who put his job on the line when he announced a policy U-turn last year, is preparing another bold move with proposals to overhaul funding and student support in further and higher education.

A working group set up following his "back to the drawing board" announcement at the Liberal Democrats' conference in Brighton is devising detailed funding models based on statistical information and views gathered from leading figures and organisations over the past three months.

The new Liberal Democrat vision for universities and colleges may include the creation of a national voucher system under which prospective students would be given an entitlement to study to a particular level via credits based on the length of study time.

Voucher funding would be controlled by Government, but local authorities would be responsible for making decisions on how much entitlement a student qualifies for, based on their achievement so far and an interview. Once the entitlement was used up a student could re-apply for a voucher to take them further.

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The system would work in a similar way to the training credits scheme, in that students would be free to "cash in" their vouchers at whichever institution they liked, so long as they were accepted and there were places available.

Institutions would get some protection from the vagaries of the marketplace with an element of core funding, and planning cycles for funded numbers. Programmes would be lengthened.

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The proposals would require greater flexibility in types of courses on offer, modes of delivery and a national framework for credit accumulation and transfer.

In addition to vouchers, students would receive housing and other benefits and an allowance through the benefits system for maintenance to be repaid through taxation once their earnings reached a certain level. The allowance might be means-tested and based on an assessment of costs likely to be incurred.

Mr Foster said the working group recognised the enormity of the challenge it had set itself in attempting to come up with an approach which could provide support for all students, whether they were full or part-time, and in further or higher education.

"If all you are going to do is simply say we will carry on the system in the same way then you are looking at the comparatively minor question of how to pay for it. We are trying to see whether or not there is a much more radical way forward," he said.

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The Liberal Democrats have concluded that the moratorium on expansion must continue if quality is to be protected. "If we conclude we can only afford 'x' amount of money, expansion will be the first casualty - quality must be the priority," he added.

While the party would try to avoid proposing student contributions to fees, it would be calling for "value for money" for courses, and making comparisons of fees charged by different institutions for similar programmes. Employers would also be expected to contribute more by providing training or paying a levy if they did not.